Terms of payment

Terms of payment

You want to ensure good payment conditions: how do you do that?

It is an important question for many entrepreneurs. You have to arrange it properly once, so that you can then make agreements with your customers, clients and suppliers.

It is especially important to be clear. Therefore, determine the provisions that you consider important and then record the payment terms that you agree with the customer. Then keep the customer or client to the agreements made, by quickly pointing this out if it seems that the other person will not keep to them.

Definition of payment terms

Terms of payment are the set of agreements that relate to the payment of goods or services sold. These agreements regulate the form , performance and time in which contract partners must fulfill  their financial obligations.

Payment terms can include topics such as billing, interest, collection costs, and payment terms.  It is important to draw up clear payment terms and make them accessible, so that both the customer and the supplier know which rules apply to a payment or payment obligation.

Importance of payment terms for entrepreneurs

It is crucial that you, as a company, establish clear and effective payment terms. This ensures a stable income stream and protects your company’s cash flow against overdue payments and defaulting customers. In addition, these terms serve as a point of reference in the event of disputes or disagreements between you and your customers.

By setting clear expectations about payment terms, grace periods , late fees , interest rates, and accepted payment methods , you can avoid unpleasant surprises that could hurt your bottom line. As a business, it is therefore important to understand what payment terms are and how they work.

Entrepreneurs who want to maintain a good relationship with their customers and at the same time ensure a sustainable income stream should be aware of the importance of payment terms. In the following sections, we discuss some common payment terms and provide tips for negotiating favorable payment terms.

Start with the provisions

Do you want to work on good payment terms? Then start with the provisions that you find important. In any case, consider:

  • Amount
    Of course you determine the amount or the consideration that you expect from the customer or relation. State the amount in the correct currency (e.g. euros) and also state the VAT percentage that you will charge. Make sure you communicate clearly, for example based on fixed rates.
  • Payment method
    How do you want to be paid by the customer? Indicate whether you do this by means of a one-off or a periodic direct debit or a cash payment. And is it a pen transaction or a bank transaction? That is also important to record, as is the types of payments you accept or do not accept.
  • Term
    The term determines when the customer must pay. Very common is a payment term of 14 days, 30 days or 60 days. State this clearly and keep in mind that you can offer your customers flexibility or receive your money faster.
  • Consequences
    Does the customer not keep to the payment term? It is important to indicate now what the consequences will be. Is it a reminder , will you increase the amount or will you engage us as a collection agency ? By determining this in advance, there can be no ambiguity about it.

Record the agreements

Introduce the customer with whom you are going to work with what provisions you have drawn up, when it comes to the payment terms. Record the agreements together, so that no misunderstandings can arise later.

Use a quote, have it signed or draw up a contract with the customer. Also add your general terms and conditions and send an invoice when you charge the costs. Make sure you also save the e-mails and other correspondence, so that you can always fall back on them in case of problems.

By formally making the agreements with each other (and having them signed) you ensure that it is clear what you have agreed. It is the easiest way to come back to it later, if there is any ambiguity or even disagreement about it.

Adhere to the payment terms

It is important to hold your customer to payment terms, for example if it appears that they are not being met. The sooner you are there, the greater the chance that you can do something about it and make things right. For example, do you quickly send a demand letter or payment reminder when the payment term has expired? By being on top of it, you make it clear to the customer that you like to adhere to the good payment conditions.

Knowing more?

Do you have any questions about good payment terms?



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